IMF Warning – China To Experience Mass Corporate Bankruptcies

The IMF has issued a stark warning concerning emerging markets and China in particular as regards a looming corporate credit crunch. Stating that a combination of lingering debt burdens in advanced economies and vanishing market liquidity could result in a new credit crunch when conditions tighten, the IMF singled out China as a high risk market in Asia and warned that there was no margin for error for policymakers navigating these hazardous risks.

This summer’s stock market volatility and unprecedented outflows from emerging markets hint at the disruption that awaits markets, said the report. China’s authorities will also have to put up with mass corporate bankruptcies and debt write-offs, said the IMF. In the wake of its stock market collapse earlier this year, the report called on Beijing to embark on an “orderly deleveraging” by removing stabilizers artificially propping up its indebted companies.

In terms of foreign investors in China, Chris Devonshire-Ellis of Dezan Shira & Associates comments: “Now is a good time to reduce balance sheet liabilities and to check on exposure within the sales and credit cycle. I strongly recommend that an assertive campaign to reduce receivables is introduced as part of the sales terms and procedures, that accounts receivables are reduced to a maximum of 90 days, then followed by an increasingly aggressive recovery process. The amount of stock out with customers that have not yet fully paid is a major issue, as is examining exposure to one or two specific large customers, including SOEs. Reducing the potential for bad debt exposure in China should now be part of the senior executive’s corporate routine. Maintaining healthy reserves – I recommend three months operating costs are maintained in China – to cover for bad debt contingencies is also suggested. Cash finances beyond this should be repatriated in the form of dividends.”

On a brighter note, the IMF did report that the United States and Japan were entering a period of expansion, while the EU was in recovery phase and improving. However all emerging markets and China in particular were at high risk. Governments in the developing world had taken the right policy actions to strengthen their public finances and reduce external debt, leveraged banks and corporates could now drive them into the ground, said the report.  

An Introduction to Doing Business in China 2015
Doing Business in China 2015 is designed to introduce the fundamentals of investing in China. Compiled by the professionals at Dezan Shira & Associates, this comprehensive guide is ideal not only for businesses looking to enter the Chinese market, but also for companies that already have a presence here and want to keep up-to-date with the most recent and relevant policy changes.

Managing Your Accounting and Bookkeeping in China
In this issue of China Briefing, we discuss the difference between the International Financial Reporting Standards, and the accounting standards mandated by China’s Ministry of Finance. We also pay special attention to the role of foreign currency in accounting, both in remitting funds, and conversion. In an interview with Jenny Liao, Dezan Shira & Associates’ Senior Manager of Corporate Accounting Services in Shanghai, we outline some of the pros and cons of outsourcing one’s accounting function.

Industry Specific Licenses and Certifications in China
In this issue of China Briefing, we provide an overview of the licensing schemes for industrial products; food production, distribution and catering services; and advertising. We also introduce two important types of certification in China: the CCC and the China Energy Label (CEL). This issue will provide you with an understanding of the requirements for selling your products or services in China.

• Previous Article U.S. Reluctantly Accepts China’s AIIB
• Next Article China’s GDP Growth – More Shocks Ahead